Investors Say Caution with Stocks is Wise

September 24, 2014 (PLANSPONSOR.com) – Investors deem caution towards the stock market as wise, and Social Security is key to retirement confidence, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index.

A new Wells Fargo/Gallup question this quarter asked investors whether they think caution toward investing in the stock market is “wise because it protects people from possible market losses,” or “unwise because it prevents people from realizing significant market gains.” Sixty percent of all investors say such caution is “wise” in this respect, while 37% call it “unwise.”

In the poll, 68% of investors say they “actively choose stocks for their long-term investment accounts,” but almost one-third (29%), say they “consciously avoid stocks in long-term investment accounts.”  Forty-two percent of those with less than $100,000 in assets say they “consciously avoid stocks in long-term investment accounts,” versus 20% of those with more than $100,000 in assets.

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Of the 29% of all investors who say they consciously avoid stocks, less than half (41%) feel confident they can reach their financial goals without stock market exposure. The majority (56%), say they are not confident they can reach their financial goals without taking on stock market risk, but they still think it is better to avoid that risk.

While most investors say they actively choose to include stocks in their long-term investment accounts, they may not be allocating enough to stocks, Wells Fargo says. On average, investors say 38% of their retirement savings are invested in the stock market. Naturally, this is lower among retirees, at 33%, but not much lower than among non-retirees, who say they have 40% invested in stocks.

In contrast to the common recommendation that investors scale their exposure to the stock market by age, the survey finds little difference in the average percentage of retirement savings that investors of various ages say they have invested in the stock market. This average is 33% among all retirees, 39% among non-retirees ages 18 to 49, and 41% among non-retirees ages 50 to 64. 

Role of Social Security in Retirement Confidence

Taking their savings and Social Security income into consideration, a majority (69%) of investors say they are “highly” or “somewhat” confident they will have enough money to maintain their desired lifestyle throughout their retirement years. However, nearly half (46%) are “very” or “somewhat” worried about outliving their savings, including 50% of non-retirees and 36% of retirees. Retirees who run out of money could become entirely dependent on their Social Security checks.

“Clearly Social Security plays a key role in thinking about retirement income, and concerns about the government’s ability to address the system’s financial problems exist for  both retirees and non-retirees,” says Karen Wimbish, director of retail retirement at Wells Fargo.

Six in 10 (58%) do not think federal lawmakers will address the financial problems with Social Security in time to preserve the system for future retirees. Two-thirds of younger investors (67%), those younger than age 50, are especially pessimistic, saying lawmakers will not fix the system. These same investors are also much more doubtful than older ones that they will ultimately receive their full or even slightly reduced Social Security benefits in retirement. A little more than one-third (38%) of investors between the ages 18 to 49 believe they will get most or all of the benefits due to them under the current system, compared to  71% of those between the ages 50 and 64, and 73% among those 65 and older.

Despite these divergent perceptions about whether Social Security will be there for them in retirement, non-retirees on average expect Social Security to account for 26% of their annual retirement income, while retirees, on average, report that it currently accounts for 30% of their retirement funding.

More information about the Index is here.

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